Legal and regulatory updates

On 9 November 2017, in a rare example of a contested recognition hearing, His Honour Judge Paul Matthews granted recognition of Agrokor’s extraordinary administration (EA) as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (CBIR).

Agrokor d.d. is the holding company for a group of companies specialising in agriculture, food production and related activities in Croatia.  Before its financial difficulties, the group’s annual revenue was estimated to amount to around 15% of Croatia’s GDP.  On 6 April 2017, the Law on Extraordinary Administration Proceeding of Companies of Systemic Importance for the Republic of Croatia (the Law, also known as Lex Agrokor) became effective.  On 10 April 2017, following an application by Agrokor, an order for extraordinary administration (EA) was made in respect of Agrokor itself and 50 of its affiliates. In July 2017, Agrokor applied to the English court for recognition of the EA as a foreign proceeding under the CBIR.  A proceeding will be a foreign proceeding if it is “…a collective judicial or administrative proceeding in a foreign State…pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation”  The recognition application was challenged by one of Agrokor’s largest creditors, who had also brought arbitration proceedings in the English courts, on a number of grounds, all of which were dismissed by the court.

A Hogan Lovells team led by partner Tom Astle is acting for an adhoc committee of bondholders, and providers of a c€1bn super senior DIP facility to the Agrokor Group.

Continue Reading English recognition for Agrokor insolvency: not a tick-box exercise

What has the U.S. Fish and Wildlife Service got in common with the U.S. banking agencies?  Simple: the U.S. Government Accountability Office (the “GAO“), which investigates financial matters on behalf of Congress, has opined that both have wrongly published general statements of policy which are in fact rules under the Congressional Review Act (the “CRA“). The GAO issued an opinion on 19 October 2017 that the Leveraged Lending Guidance (being the final interagency guidance on Leveraged Lending issued on 22 March 2013 jointly by the US banking agencies) (“LLG”) is a rule subject to the requirements of the CRA, meaning that it should have been submitted to each House of Congress before it was implemented, and opening the door for the possibility of it being overturned. This is notwithstanding that the LLG explicitly states that it is not a rule – the GAO has reiterated that an agency’s characterization is not determinative of whether it is a rule under the CRA, and the LLG does not meet any of the CRA exceptions.

What does this mean? Read our full bulletin to find out!

On 4 October 2017 the ECB published an addendum to its Guidance to Banks on non-performing loans (click here to read our earlier report on the guidance).  On 5 October 2017, the EBA published its work programme for 2018 which included further work to assist in the resolution of non-performing loans. Both of these documents show the level of importance placed by EU authorities on the reduction of NPL levels held by European institutions.  Expect more “encouragement” for banks to deal, one way or another, with their NPLs in 2018.

Continue Reading Further guidance expected for NPLs in Europe

In our previous blog post, we examined the decision of the New South Wales Court of Appeal to uphold the composition of classes of creditors in the Boart Longyear restructuring by way of scheme of arrangement.

Following an extensive second court hearing to approve the schemes of arrangement (which involved multiple days of hearings, several adjournments, and a court-ordered mediation), amended versions of the Boart Longyear schemes have now been approved by the Australian courts.

The decision emphasises the importance of the court’s overall “fairness” discretion in approving a scheme, irrespective of whether classes of creditors have been properly constituted. Importantly, differential treatment within a class of creditors that may not be sufficient to justify the creation of a separate class may nonetheless create sufficient unfairness to cause the scheme to ultimately fail. Significantly, the court was clear in its final judgment that the schemes as initially drafted would not have passed the “fairness” test and would have been rejected.

Continue Reading Update – Boart Longyear schemes of arrangement approved

In Re Lehman Brothers Europe Ltd (in administration) [2017] EWHC 2031 (Ch) a proposal by joint administrators to appoint a director to a company already in administration (LBEL), in order to distribute surplus funds to its sole member (Lehman Brothers Holdings plc (LBH)), as opposed to a creditor, was held to be legally permissible, as well as pragmatic and beneficial.

It is unlikely that many (perhaps any) future administrations will result in a surplus of the size that has been generated in the Lehman administrations. For that reason, the decision in this case is unlikely to be of frequent direct application. Nevertheless, the case is a useful illustration that, while being mindful of Lord Neuberger’s stricture as to the need for legal certainty and to avoid unjustified judicial creativity outside the insolvency legislation, the courts are still willing to adopt a pragmatic approach in assisting insolvency practitioners who need to act quickly in circumstances where their proposed actions are not are not expressly addressed in IA 1986. The decision also provides a pertinent reminder for insolvency practitioners that they must carry out their functions as administrators with the aim of achieving the statutory purpose of the administration—merely avoiding conflict with that purpose is not sufficient.

Hogan Lovells acted for the administrators of Lehman Brothers Holdings PLC in this case.

Click here to read more (the article previously appeared in LexisPSL).

 

In a decision that will be welcomed both by second-ranking secured creditors and by administrators, the Court of Appeal recently held that a second-ranking floating charge (SRFC) was still capable of being a qualifying floating charge for the purposes of Schedule B1 of the Insolvency Act 1986 despite the earlier crystallisation of a prior-ranking floating charge (PRFC).  In addition, the SRFC was capable of being enforceable notwithstanding the fact that there were no assets of the chargor which were not covered by the PRFC.  Accordingly, the appointment of administrators by the holder of the SRFC was valid.  Case: Saw (SW) 2010 Ltd v Wilson [2017] EWCA Civ 1001

Continue Reading Administration appointment valid notwithstanding crystallisation of prior-ranking floating charge

In the recent case of Kevin Taylor v Van Dutch Marine Holding Ltd and others, the UK High Court decided that the exercise of existing rights by a secured creditor should not be regarded as a disposal by a defendant, and as a result, enforcement by a secured creditor is not an infringement of a freezing order. The High Court also clarified that it is not necessary for a secured creditor to bring an application for variation of the freezing order.

Continue Reading Secured creditors are not left out in the cold

On 13 July 2017 the High Court gave its judgment in UBS AG, London Branch v. GLAS Trust Corporation Limited [2017] EWHC 1788 (Comm), a case brought by UBS against the trustee for notes issued as part of a securitisation transaction by Fairhold Securitisation Limited (the “Issuer“). UBS disputed the ability of the trustee to absorb costs incurred by a group of noteholders pursuing a potential restructuring of the debt. The case will be of interest to trustees, investors and other stakeholders involved in the restructuring of finance transactions involving a trustee. The case provides some useful guidance on the test to be applied in determining whether expenses of a trustee have been “properly incurred“. Continue Reading Paying for a debt restructuring – can costs be adopted by the Trustee?

Despite a modest uptick in recent years, it is still a relatively rare occasion for the Supreme Court of the United States to tackle issues involving bankruptcy. This term, however, the Supreme Court has granted certiorari in two bankruptcy appeals that could have important consequences for the financial community. In FTI Consulting, Inc. v. Merit Management Group, LP, the Court will define the parameters of the safe harbor of Bankruptcy Code section 546(e), which excludes certain financial transactions from the debtor’s avoidance powers. In PEM Entities LLC v. Levin, the Court will also determine whether federal or state law should apply when analyzing whether debt should be recharacterized as equity. Both cases could alter how financial transactions are structured and documented.

Continue Reading Dabbling in distress: U.S. Supreme Court to hear two important bankruptcy issues next term

This article first appeared in the Summer 2017 edition of Recovery Magazine and is published here with their kind permission.

The Companies Act scheme of arrangement – now set out in part 26 of the Companies Act 2006 (CA 2006), has come a long way.  Long gone are the times when schemes of arrangement – never an Insolvency Act process – were merely seen as tools for implementing solvent reorganisations. Schemes of arrangement are nowadays one of the most favoured means for rescheduling, reorganising or otherwise compromising the liability of companies to their creditors in complex multijurisdictional restructurings.

English schemes are popular because of the breadth and flexibility of the legislative provisions and their low jurisdictional threshold. Additionally, the courts take a robust and pragmatic approach to the proponents and opponents of the part 26 process. This article summarises four examples of that pragmatism in action.  Click here to read the full article.